Judge: Washington's capital gains tax challenge can move forward

A judge ruled Friday that a legal challenge to Washington’s new tax on capital gains can move forward.

The Seattle Times reports the ruling by Douglas County Superior Court Judge Brian Huber could ultimately lead to the state Supreme Court deciding whether the new capital gains tax constitutional.

The legal challenge takes aim at Senate Bill 5096, which passed this spring through the Democratic-controlled House and Senate and was signed by Gov. Jay Inslee. It creates a 7% tax on the capital gains of sales of assets — like bonds and stocks — above $250,000. The law takes effect January 2022, with the first state tax returns coming due in 2023.

The law exempts a range of assets, like retirement accounts, sales of real estate, livestock, timber and some agricultural properties, and some auto dealerships. It also exempts the sales of sole proprietor businesses with gross revenues of up to $6 million.

If it takes effect, the tax would raise about $445 million per year. That money would go into the state’s Education Legacy Trust Account, intended for child care and early learning programs.

RELATED:  Capital gains tax signed into law in Washington state

The legal challenge is a consolidated case that started with different lawsuits against the state by several plaintiffs — including the owners of farmland and the Washington Farm Bureau — that contends the new law, among other things, imposes an income tax. In that scenario, it could violate the Washington Constitution, which states that taxes are to be applied uniformly across the same classes of property.

In his order, cited, among other things, an allegation by plaintiffs that the new tax has already "lowered the market value of their property and forced them to make tax planning decisions that impact their financial interests in a way that is concrete and non-speculative."

The judge also denied a request by the Attorney General’s Office that the case be moved to Thurston County if it were to proceed.

In a statement, Solicitor General Noah Purcell said the Attorney General’s Office disagreed with Friday’s ruling, but "we have every confidence that this law will ultimately be upheld."

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